Builders are seeing a surge in demand for ready-to-move-in properties because such apartments with occupancy certificates are not within the ambit of Goods and Services Tax, which has raised overall taxes on property.

An under-construction project attracts a flat GST rate of 12%. In the pre-GST era, the total tax — including VAT, service tax, Swachh Bharat cess and Krishi Kalyan cess — roughly worked out to 9% of the total sale value (cost of land and construction).

According to a recent report, for ready-to-move-in properties, customers need to pay only the registration and stamp duty charges over the sale value. “Queries for ready-to-move-in properties 12 months ago comprised roughly 25% of the overall enquiries, but only 16% of the overall sales. Now, the figure has increased to 25% of the overall monthly moving average sales. The Buyers who had postponed their decisions in the run-up to GST and the Real Estate Regulation Act (RERA) have returned to the market. The builder has set up a dedicated team to sell ready-to-move-in projects. Usually, ready-to-move-in as an asset class constitutes a small portion of the total revenue for developers as 75%-80% of a project gets sold between launch and completion.

Experts believe that restricted supply of fresh projects after the implementation of RERA has also contributed to the growth in demand for ready-to-move-in houses. Builders are stuck with old inventory and are keen to sell it off before launching new projects.
Under RERA, many developers may move to a format where they would complete the project and then come to market to sell it, in order to minimize risks.

Restaurants, which lost input tax credits when the goods and services tax was reduced for eateries, want the benefit restored for a major expense component i.e. rent.

A little over a week after GST was slashed to 5% for cafes and diners, restaurant associations have planned to approach the finance ministry to seek input tax credit on rent. They said rent is a critical fixed cost, especially for outlets operating in prime locations in metros and at airports.

The GST Council recommended earlier this month that GST for restaurants be cut to 5% with no input tax credit from 18% previously with input credit. However, eating out didn’t become cheaper in many cases because some restaurants increased the base price of items to offset the credit loss. The National Restaurant Association of India plans to send representations to the finance ministry on this matter.

Restaurants were denied input credit after it was found that they had not passed on the benefits to customers. Tax officials have sought details about menu prices before and after the GST rate cut, which was effective November 15. The move followed reports of some chains raising prices. The government is keen to ensure the benefit of GST reduction is passed on to consumers. Many restaurants and lounges that operate in airports pay steep rents, which are converted to licence fees.

Any other business also gets input credit on these expenditures. Why should restaurants be differentiated?

Should the Realty Sector particularly the stamp duty be brought within the ambit of GST? According to the Associated Chamber of Commerce and Industry of India, the apex Industry Body, if the realty sector is brought within the ambit of GST it should be along with the stamp duty and moderate rate, and should not add to the cost of housing and construction. Certain Industry experts feel that the inclusion of real estate in the Goods and Services Tax (GST) regime may prove to be a positive move for consumers who will gain from greater transparency, more regulation of the sector and possibly lower price on purchase of new property. Certain others feel that the inclusion of Realty Sector in GST regime, could curb the black money being largely circulated, since the realty sector majorly thrives of unaccounted money. According to certain other experts, Realty Sector witnesses the maximum amount of tax evasion and therefore has to be brought under the indirect taxation regime.

However, would this be a possibility, particularly when the Realty Sector is subject to state levy of taxes rather than the centre, more particularly when the cement is still subject to a levy of 28% GST?

It came as a recent piece of news that the legislature was planning to churn out a legislation whereby they could bring in Real Estate under the Umbrella of GST. Have we ever wondered as to what prompted the Financial Minister to state so? According to him, the one sector in India where maximum amount of tax evasion and cash generation takes place is the real estate, which is still outside GST, therefore there is a strong case to bring real estate into GST. How far is this feasible? So far as the realty sector is concerned, under-construction properties are taxed at 12% apart from the Stamp Duty from 4 to 8% and registration charges, and property tax (annual municipal levy) on a property. Before the advent of GST, service tax was applicable at 4.5% on under-construction properties. However, no credit of tax paid on goods namely on VAT and excise duty was allowed to developers. For a completed property, GST is currently not applicable. Apart from the above, the computation of revised sale price is a complex as well as time-consuming task. Developers have to depend upon their contractors to know the VAT and excise duty incidence and have to wait for the project to complete before they know how much price reduction can be done finally. While the incidence would depend upon the type of project, estimates suggest that price reduction, even if done on estimated basis, is unlikely to be sufficient to bridge the gap between GST at 12% and service tax at 4.5%. However, the buyers of under-construction properties to re-negotiate with their developers on how much less amount they will have to pay in the wake of ITC (Input Tax Credit). This means that whatever construction takes place post-GST, the developer can claim ITC which can be passed on to the consumer. But with the imposition of GST on under constructed properties, aren’t the homebuyers reeling towards buying a ready to move in homes as compared to the under constructed ones?
From a consumer’s viewpoint, paying GST and stamp duty for an under-construction property leads to an overall tax outgo of 17-18%, however, a ready-to-move-in project, a consumer would only have to shell out on stamp duty. The Developers would not be able to claim input credit and it would become a cost to them. Consumers who have invested into projects that are almost complete will face the brunt of the new policy on the amount to be paid under GST. As a large part of the construction of their project is over beyond one year, their developer will not be able to claim input credit. Although the government has allowed past one-year to claim credit, a majority of them either have not maintained the requisite documents such as invoices or have incurred the taxes beyond past one year. Wouldn’t complying with the anti-profiteering provision be a huge task? While this is a good principle that can be applied in case of tax saving, if the same is mixed with change in the procurement cost it goes into a grey area. Will it be applied on a project basis, state basis or pan-India basis? Will there be any index for reference?
There is a growing clamour from a large number of states to bring real estate fully under GST. This means that GST should be charged on the sale of completed buildings. Shouldn’t the government either substantially reduce stamp duty or eliminate it so as to not double tax the consumer?

A recent study report of CREDAI, the real estate Developer’s body, revealed that the supply of affordable houses has increased by 27%. What is the factor that contributed towards this sector of housing? The answer is that the initiatives of the government, to boost its flagship programme, has lured many developers to offer its services to lower income and middle income group. Among the new launches, the Mumbai topped the list with a whopping 40% increase in housing supply, followed by Kolkatta and Pune. Mumbai witnessed the highest number of launches, at over 19400 new residential houses until September 2017, out of which affordable housing sector had a share of close to 10000 units registering a rise of 300%, when compared to the previous year. What is the reason for this enhanced growth rate in the affordable housing sector? The key to this is that the implementation of RERA and GST has boosted the confidence of home-buyers, who were swinging in a dilemma to buy a house. The enhanced confidence resulted in many enquiries for the right kind of properties in which witnessed good traction during the current festive season. So would we see more developers investing in this sector?

While the real estate industry was still analysing the impact of Goods and Services Tax (GST) on the prices, the government is hinting at making it unified across the nation. The Union Finance Minister recently hinted at bringing all real estate transactions into the ambit of GST.

As real estate witnesses a high amount of tax evasion and cash generation, the finance minister underlined the pressing need to bring the sector under GST purview. He also went on to add that some states had been insisting on doing so.

India Brand Equity Foundation, a trust founded by the Department of Commerce, Ministry of Commerce and Industry has estimated that the realty market in the country will touch $180 billion by 2020 and states that residential real estate contributes about five-six per cent to the country’s Gross Domestic Product (GDP).

As of now, a 12 per cent GST is charged on the construction of a complex, building, civil structure or intended for sale to a buyer, either wholly or partly. On the other hand, land and other immovable property have been kept free from the GST. The rate of stamp duty varies from state to state and is in the range of three to ten per cent. Currently, ready-to-move-in properties, sale of land and stamp duty are out of the GST ambit. These transactions are considered as `exempt supply’ to effectively reduce the input tax credit. If the real estate sector is brought under GST, wouldn’t he home-buyers pay uniform tax nationwide? Wouldn’t Stamp duty and land sale may also come under the GST ambit? Would there be minimum burden on the home-buyers? Wouldn’t the real estate sector become further more transparent and organised? Wouldn’t charging both 12% for under constructed properties apart from stamp duty charges amount to double taxation?

Start – ups and digital service providers such as Quickr, Urban Clap, Housejoy most known for providing platform for housekeeping services such as plumbers, carpenters and cleaners are now tasked with keeping them on board. These services now attract 18% GST making them noncompetitive in comparison with the neighbourhood rivals, who get jobs typically based on the word of mouth. A recent report reveals that in comparison with the online and offline based services, the service providers are required to pay a staggering 18% GST if they operate in the online platform unlike the offline services, wherein they ought not to pay any service tax. A recent notification by the Government of India, with regard to the levy of GST reveals that irrespective of the service provider’s turnover services via online platforms would be liable to tax. This needs to be collected and paid by the platform. It has also become inevitable that the service providers, becoming a part of the formal economy have to start filing returns and maintain records even if they are below the threshold limits. Wouldn’t this type of levy discriminate between the two types of service providers which is much against the Government of India’s objective of formalising the digital sector, thereby making the country a Digital India? Doesn’t this hit the service providers and making their services costly, particularly when they are functioning with the aim of providing services for a reasonable prices when compared to the local neighbourhood providers? Wouldn’t this defeat the purpose of the establishment? Wouldn’t this make the prices of services more costlier when compared to the local neighbourhood costs?

The Realty Sector in Mumbai is witnessing its worst slump ever, with market rates of properties in several areas, including south Mumbai, dipping below the ready reckoner rates which are values of properties, determined by the government for payment of stamp duty. These rates, published annually, impact the construction cost of projects, as several premiums and charges collected by the civic bodies and the government itself are linked to the ready reckoner values. According to sources, many prominent developers and industry watchers have stated that never in the history of the city have they witnessed such a phenomenon, even as debt-laden builders, struggling with slow sales, unsold apartments, and delayed/stalled projects, are pulling out all stops to attract buyers. According to a recent research report, the market rates of residential properties in Colaba (Shahid Bhagat Singh Road) is around Rs 40,000 per sq ft, while the ready reckoner rates for the same properties is at least Rs 10,000 more. Similarly, the market rates of residential properties in Dadar West is around 30,000 per sq ft, whereas the ready reckoner rates in the area are pegged at Rs 40,000 to Rs 45,000 per sq ft. In parts of Powai, the current ready reckoner rate is Rs 27,000 per sq ft while flats are being offered for Rs 25,000 per sq ft or less. The report further reveals that since 2015 when the market was sluggish but wasn’t facing such complete slump, the ready reckoner rates have gone up by around Rs 2,000 to Rs 5,000 per sq ft in many parts of Mumbai, whereas the market prices have remained the same or worse, dropped by Rs 3,000 to Rs 4,000 per sq ft. Does this mean that the government has been increasing ready reckoner rates by around 15% per year and that the market prices have remained flat? Shouldn’t Ready reckoner be the true barometer of real estate prices? How could we treat it as a revenue machine? The NAREDCO, an autonomous regulatory body affiliated to the Ministry of Housing and Urban Affairs, has affirmed there is a discrepancy between the market prices and the ready reckoner rates, saying the change has come about with the introduction of Real Estate Regulatory Authority (RERA), wherein the carpet area of a property has been defined. Developers are now selling properties at carpet area. As a result, areas such as Colaba, Bandra, Santacruz, and Thane are witnessing higher ready reckoner rates compared to the actual market price. So is this the chance for the buyers to cash in on opportunity to make investment, particularly when the Developers are offering slew of incentives to them?

The recent research report of a real estate advisory company, in 2016 and the first quarter of 2017, residential projects including townships across the country have attracted an investment of over Rs 26,000 crore. Another research report reveals that residential properties in the Rs 35 lakh price bracket accounted for the majority of sales in at least four out of seven major Indian cities last year. The report further states that this is the new era for housing in the Indian real estate sector. It is a reflection of burgeoning buyers’ confidence in the wake of government reforms witnessed in the recent past. The centre’s focus on affordable housing and rate cuts are meant to encourage primary beneficiaries of the scheme lower income home-buyers. With RERA in place and GST already making an impact with its national roll out, the gloom, whatsoever, created by demonetisation is gone and the realty sector is showing clear signs of revival. Does this imply that this is the best time for buying or owning a dream home in India, particularly when the home loan rates are considerably low now and more particularly as the largest public sector bank in India has also reduced its home loan lending rates by 25 basis points, for loans upto Rs 30 lakh, to 8.35 per cent?

Realty stocks climbed as much as 18% on resumption of trading in Mumbai after the Diwali weekend. Kolte-Patil Developers, Sunteck Realty , Puravankara, and Sobha registered fresh 52-week highs, with buyers expected to reward developers that have good completion and delivery records. Shares of Arihant Superstructures, Ansal Buildwell, DLF, Anant Raj, Godrej Properties and Peninsula Land also rose between 3% and 8%. What is the reason for the same? The answer is that with the uncertainty around the implementation of Real Estate (Regulation & Development) Act is now over, the formation of regulatory authorities in key property markets has helped build confidence among home-buyers. These factors, combined with low home-loan interest rates and rising affordability of residential units, could stoke a revival in demand in the second half of the year. The residential realty sector is expected to witness an uptick in residential new sales in the coming quarters across key markets, driven by favourable macros, low interest rates, improving affordability and significant pent-up demand. Also the interest rate subvention for first-time buyers from the middle income group may incentivise fence-sitters to buy homes. It is also predicted that office space demand would remain strong. Shares of Godrej Properties, Sobha and Kolte-Patil have appreciated between 109% and 219% since the beginning of the year, since the developer’s operating cash flow remains positive. What about the debt that may increase on account of some land payments?